Events:

On October 23, 2023, Poni Test released the third quarterly report of 2023: the company's operating income in the first three quarters of 2023 was 1.758 billion yuan, down 34.44% from the same period last year; and its net profit was 105 million yuan, down 41.69% from the same period last year. 2023Q3, the company realized operating income of 571 million yuan, down 42.78% from the same period last year, and realized net profit of 12 million yuan, down 86.63% from the same period last year.

Main points of investment:

The impairment of credit and the profit or loss of disposal of fixed assets affect the profits of the current period. In the first three quarters of 2023, the company lost a total of 31.89 million yuan in credit impairment, of which 17.91 million yuan was increased in the third quarter.

At the same time, the company's disposal of fixed assets resulted in an asset disposal loss of 14.14 million yuan in the first three quarters of 2023, of which 9.78 million yuan was added in the third quarter. These two factors led to a significant decline in the company's reported profit in the third quarter of 2023 compared with the same period last year.

The gross profit margin increased significantly compared with the same period last year, and the rate of sales and management expenses increased compared with the same period last year. In the first three quarters of 2023, the company's gross profit margin was 43.69%, up 8.85 pct from a year earlier, mainly due to a sharp drop in costs due to a reduction in the company's infectious medical testing business. At the same time, the company's sales expense rate increased to 15.67% compared with the same period last year, and the management expense rate increased by 4.05pct to 11.61% year-on-year.

Expand production capacity, promote mergers and acquisitions to enhance strength. In the first half of 2023, the project of Xi'an Company Building and Chuangni Test Center of Poni Group was successfully put into production, and the civil construction task of Shandong headquarters Building was completed. At the same time, the large-scale multi-function new energy vehicle Sandian laboratory built by the company in Shanghai is about to be completed and put into use. In September 2023, Puni Pharmaceutical won 53400 square meters of industrial land, and the strength of the group was further enhanced. At the same time, the company continued to promote mergers and acquisitions, the acquisition of Hubei Zhongjia synthetic Pharmaceutical Co., Ltd., Heber testing Technology (Shanghai) Co., Ltd., Jilin Titanium Calibration testing Co., Ltd.

Taking into account the significant decline in the company's reported results in the three quarters and the risk of impairment of accounts receivable, we expect the company's 2023 and 2024 earnings to be reduced to the "overweight" rating of $364 million in 2025, respectively, corresponding to a multiple of PE in 34-24-19.

Risks suggest that the growth rate of traditional business orders is not as expected; the progress of new business development is not as expected; the pace of mergers and acquisitions is not as expected; the growth rate of corporate performance is not as expected; the effect of merger and acquisition integration is not as expected; the release of laboratory capacity is not as fast as expected.